Ask HN: At what point do bootstrapped/pre-seed founders need to pay themselves?
If I form a C-Corp with a co-founder, at what point do we legally have to pay ourselves?
We want to set up a corp for IP assignment while working on it part time, and are still weighing how long we want to try and bootstrap before getting outside funding.
Do we need to pay ourselves minimum wage? At what point do we need to?
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Disclaimer: IANAL. This is not legal advice.
Legally, as soon as a corporation exists and both parties are contributing work to it. In practice, this is very commonly bent - it's very common to find startups that aren't paying one or more cofounders, even ones that are years old. The main reasons to pay yourself are:
1. You can be in violation of minimum wage laws otherwise.
2. Contracts require "consideration" (i.e. exchange of something of value) to be valid; there's a chance that one person could argue that their IP agreement is null and void if they aren't paid.
Both of these are civil actions, not criminal, so they require that a founder bring suit against the company to be enforced. The vast majority of the time, when things are going good you can ignore them, because no founder has an incentive to sue their company. The place where it very frequently bites founders is if one founder leaves or is forced out, or the company is hanging on by a thread and then turns things around. At that point, unpaid wages become a (potentially very serious) liability, which creates negotiating leverage for the departed founder, so they can say "Ha ha, give me lots of equity or I will sue and blow up your latest financing" and you'll have to do as they say to avoid an expensive and distracting lawsuit. Up to you how comfortable you are running this risk: in the case where everything goes well, they're not gonna sue, and in the case where everything goes to shit there's not gonna be anything worth suing, but in the middle case where things almost went to shit but you pulled through it could be worth millions.
As an aside, it helps in your mental accounting if the founders are getting paid. It's very easy to fall into the trap of "my time is free, so I will do this task myself and avoid paying this outside vendor to save the money" even if they could've done it much more efficiently than you. I've fallen into this trap very frequently, and in practice this is probably a much stronger argument for paying yourself than the legal risks.
This may or may not apply to you but in the UK you can get R&D tax credits, so it's beneficial to pay yourself so you can claim back a portion of your salary as tax credits. This works even if you personally loan your company the tax free allowance (which is about £10k) that then gets paid back to you.
iirc our accountant informed us at one point that the minimum wage laws don't apply to "owners" of a company. This is California.